MARKET SUMMARY 09-29-2022
Despite a strong rally in the U.S. dollar, wheat prices are holding together well. Dry weather in the southern plains as well as northern regions of the U.S. and southern Canada provide for less-than-ideal conditions. Wet conditions in Europe and Russia suggest a less-than-ideal fall planting season. And of course, uncertainty with the war suggests “business is not as usual”. Normally there is an inverse relationship between U.S. wheat prices and the U.S. dollar. That is not the case as of late, a potential signal that world supplies remain tight and there is little reason to be bearish. Technical indicators point to new crop Jul Chi contract testing 10.00.
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CORN HIGHLIGHTS: Corn futures traded both sides of steady and finished mixed with nearby Dec losing 1-0 cent closing at 6.69-1/2 and Sep 2023 gaining 1-1/2 to end the session at 6.26. Position squaring in front of the USDA report, as well as a lack of fresh friendly news, weighed on prices, as did the perception of harvest pressure.
The USDA reported an increase of 20.2 mb of corn export sales for 22/23 and 6.3 mb for 23/24, ok numbers but not stellar. This, again, confirms a hand-to-mouth purchasing practice as harvest gets underway. Mostly dry weather in the Midwest should advance harvest with the most recent 6-to-10 day indicating below normal precipitation. Competing with the U.S. for sales is Ukraine, which is potentially hurting U.S. exports, yet in the grand picture, probably not a lot. With the way the war has escalated, we would be surprised if the agreement to allow exports is not extended when it ends in November. Slow ethanol production could be blamed on demand. We believe it may have more to do with plants either closing or partly closing for maintenance, or there just is not enough corn to be bought, or both. The average pre-report estimate for tomorrow’s report is 1.497 bb.
SOYBEAN HIGHLIGHTS: Soybean futures closed with gains of 2 to 4 -1/4 cents, with January leading today’s gainers closing at 14.20-1/2. Nearby Nov gained 2 to close at 14.10-3/4 with a range of 14.03-1/4 to 14.23-3/4. Nov 2023 added 4-1/4 to close at 13.63. Position squaring in front of tomorrow’s Stocks report and another decline in the dollar were viewed as supportive. Harvest is underway with some results that would indicate a good but not great crop. It is too early to draw conclusions.
USDA reported an increase of 36.9 mb of soybean export sales for 22/23 and a reduction of 1.1 mb for 23/24, supportive for old crop. Crude oil closed sharply higher yesterday as the U.S. dollar eased back which may have signaled a turnaround for prices. Yet, pressure in the soybean market has come from slow China export demand, potentially bigger crops in South America, and overall lower palm oil prices. Additionally, Argentina farmers are said to have sold 13 mmt of cash soybeans in September after the government offered them a more favorable exchange rate. This is the equivalent of 477 mb, no small amount. Interestingly this leaves Argentina with a tight supply. The bet is that both Argentina and Brazil will have bigger acres and bumper crops. Yet, dry weather in northern Argentina and southern Brazil is surfacing and could be a problem if the trend of low moisture continues. Quarterly stocks are forecasted at 247 mb. Anything less would suggest a tighter carryout and therefore smaller carry in for the 2022/2023 marketing year. This could mean carryout less than 200 mb in the year ahead, paper thin.
WHEAT HIGHLIGHTS: Wheat futures took a breather today with a moderately lower close in all three U.S. classes and Paris milling futures to boot. A lack of fresh news and economic concerns weighed on the market today. Dec Chi lost 7 cents, closing at 8.96-1/4 and Mar down 7 at 9.08. Dec KC lost 9-1/4 cents, closing at 9.66-3/4 and Mar down 7-3/4 at 9.64-1/4.
Though showing strength earlier in the day, those gains faded by the close, and wheat finished in the red. The biggest news this week in wheat has been the increase in tensions in the Black Sea region. Putin’s comments about using nuclear weapons are a concern, as is the annexation of four Ukrainian states. Additionally, the Nord Stream pipeline is now reported to have at least four leaks with the damage still seen as intentional. The ultimate concern for many is that the war may escalate to a global conflict if it breaks out beyond the borders of Ukraine. Wheat futures have been responding in kind but global demand and economic concerns are weighing on most commodities overall. The ultimate question is which side of the scale will tip first. Dryness in the southern plains, another close above the 100-day moving average in Paris milling wheat futures, and production concerns all point to the supportive side long term. Argentina’s Buenos Aires Grain Exchange, as an example, lowered its wheat production estimate to 17.5 mmt, which is down 1.5 mmt from the last USDA estimate. In other news, the USDA reported an increase of 10.3 mb of wheat export sales for 22/23.
CATTLE HIGHLIGHTS: Cattle futures rebounded today with help from strong export sales data and the possible beginning of a correction from an oversold situation. Oct live cattle were up 1.075 at 144.125 and Dec gained 1.500 to 147.775. Oct feeder cattle gained 2.325, closing at 177.325.
Beef net export sales totaled 21,500 mt with the majority sold to South Korea, China, and Japan. This in part helped the cattle complex today, as did a lower U.S. dollar. The dollar, which recently reached new 20-year highs, has eased off of that high and is offering some relief to most commodities. In addition, a mixed close in corn likely contributed to the strength in feeder cattle today. In general, however, the recent strength in the dollar, as well as global concerns about food and energy prices, may affect international demand and weigh on cattle prices when looking down the road. From a technical perspective both live and feeder cattle could be considered oversold and due for a correction. Traders may be seeing the beginning of that correction with stochastics indicating a potential buy signal in the form of a crossover between the K and D lines. Fundamentally, much will depend upon the global economic outlook but only time will tell what that looks like.
LEAN HOG HIGHLIGHTS: Lean hog futures saw some follow-through buying early in the session, yet only finished mixed. Oct gained 7.5 points to close at 89.45 and Dec lost 10 to close at 75.25. A defensive posture in front of the Quarterly Hogs and Pigs report and lack of confidence that world demand can hold up has plagued the market this week and again today. The report, released at 2:00 indicated All Hogs and Pigs at 98.6% of a year ago, Kept for Breeding at 99.4%, and Marketing at 98.9%, pretty much as expected. Some might suggest slightly friendly.
With today’s report out of the way, the market will be watching the demand in the near term with the Chinese Golden holiday from October 1-October 7. China has been releasing pork supplies out of its reserves, to help combat high pork prices domestically. Export sales were viewed as good today at 34,300 mt. We can’t help but believe that if China wanted to buy U.S. pork at a lower value, the way to get it done is to increase internal supplies while the dollar is rallying. Futures and cash prices have declined and have now become attractive and at their lowest level in multiple months. Expect demand both domestically and on the export front to pick up in the weeks ahead. Additionally, this is also a time of year when prices tend to decline and search for a bottom. Estimated slaughter was 476,000.
DAIRY HIGHLIGHTS: The October Class III contract hit a daily high of $22.20, the highest the second month chart has traded since July 7th, but gave back some gains to close up 9 cents at $21.94. The market seems touchy despite the block/barrel average sitting above $2.10/lb given the divergence in cheddar blocks and barrels, with barrels pushing to nearly a 30 cent premium. For Class IV, October futures were unchanged at $24.30 for the fifth straight trading day while the deferred months came under slight pressure. The Class IV 2023 average hit a new high of $21.50 two weeks ago but has dropped roughly 30 cents since then.
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Author
Bryan Doherty